Archives for posts with tag: Handymax

Seven years into the recession, the tanker market is blazing away, with VLCCs earning over $50,000/day and Aframaxes not far behind. It’s an amazing development which leaves investors pondering whether this is, in Churchill’s famous words, “not the beginning of the end, but maybe the end of the beginning”. Analysts now wonder if it’s worth the risk of going out on a limb and calling “turning point”.

Potential Paradigms

Whatever the outlook, it’s worth pausing to enjoy the moment – and, perhaps, reflect that nothing like this happened in the 1980s. So something has obviously changed, but over the long-term it’s hard to see what it is. Since 2007, the tanker fleet has grown much faster than seaborne oil trade. We know from experience that when there’s an underlying surplus, spikes rarely last more than a few months and paradigm shifts making “this time different” are rarer than hen’s teeth, if not impossible.

Disappointing Demand

Let’s start with the crude oil trade, which fell by 6% from 38.4m bpd in 2007 to about 36.3m bpd in 2014. OECD oil demand has declined since 2007, with North America down 8%; Europe down 12% and Japan down 13%. So there’s not much joy there. Add an extra 4.6m bpd of oil production in North America and seaborne crude imports dropped by 2.1m bpd. Of course, non-OECD imports have increased, as has products trade, but overall the oil trade has only increased 2.8%, from 55m bpd in 2007 to 56.5m bpd in 2014. A tonne-mile approach pushes the growth up to 7.9%, but that’s still only 1.1% pa.

The Flighty Fleet

Meanwhile the tanker fleet has been buzzing. At the end of 2007, when the credit crisis was just getting started, it was 383m dwt, but since then it has grown by one third (126m dwt) to 509m dwt. Of course, macro statistics are always a bit fuzzy, but an increase of less than 10% in trade and 33% in ships tells a pretty clear story that there is probably lots of ‘surplus’ tonnage tucked away.

A Logical Disconnect?

Such a surplus should surely “cap” rates. But clearly this is not happening, so what’s going on? There are a few explanations. Firstly, seasonality; global oil demand was 2.1m bpd higher in Q4 2014 than in Q2. Assuming most of that is translated into trade, that’s a 4% increase which, over a short period is enough to get things started. Add to that the surge in speculative cargoes held at sea, and demand is motoring. Finally, throw in the reluctance of owners to speed up, and the limited growth in the crude tanker fleet in recent years, and the recent rates look more convincing.

Cyclical Or Structural?

So, simple numbers don’t always give you the whole answer, but there’s never any harm in looking at the big picture. If the simple interpretation is right, things might ease off. But the real dilemma is probably the underlying surplus. Are today’s speeds the ‘norm’ for the future? With bunkers at $300/tonne, the answer is “maybe”. But given time, it could well become a key question. Have a nice day.

SIW1168

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SIW1093In recent years large crude tankers are down having taken a good kicking, and today punters don’t seem to like the look of them. However, a survey of earnings in each major sector during the five years since the 2008 crash tells a slightly different story, which is worth looking at closely.

Method In The Madness

To calculate an “earnings ratio” for each ship type since October 2008, average monthly earnings were divided by estimated operating expenses (OPEX). The result is a percentage showing earnings as a multiple of OPEX. For example 300% means that the average earnings was three times operating costs, a good result. 100% would mean that the average earnings equalled operating expenses, with no “free cash”. This ratio was calculated for the 10 ship types shown on the graph and ranked with the biggest ratio at the top.

Who Would Have Thought It?

Top of the list with 300% are Capesizes. Investor sentiment backs this up, even if five years ago Capes looked like they were on the slipway to oblivion, with an enormous orderbook and doubts over Chinese steel demand. But the most interesting feature of this survey is that two of the top four places in the ranking go to types that popular sentiment does not appear to care for. Those primetime underdogs, VLCCs, come fourth, with a 223% earnings ratio and Suezmaxes are even higher in second place with 243%.

The middle ground is occupied by Aframaxes and Panamax bulkers, with ratios of 190% and 179%. Not such a bad result. Finally at the bottom of the table are the products tankers at 140%-160% and the containerships. MR products tankers have been recent favourites with investors, with more positive fundamentals today, but these figures (although precise earnings can be hard to track due to complex trade patterns) reflect some tougher periods in the last five years.

What’s The Message?

Technical issues aside, there are four points. Firstly, over the five years everyone made a bit of cash, mostly in the earlier years. Secondly there is a striking correlation between the earnings performance and size. Three of the top four performers are all over 100,000 dwt, with some midsize vessels in the middle ground. Thirdly, big tankers generally did little worse than bulkers, maybe due to the smaller orderbook. Finally, the worst performers were container charter ships, illustrating the danger of relying on “trickle-down” income from beleaguered liner companies.

Love Hate Relationship

So there you have it. Big tankers have performed relatively well since the crash, but now they’re on the rack of market sentiment and falling US imports. Of course the next few years could be a different story; with only 10.5% of the fleet on order and fewer contracts then deliveries, there’s not much wrong with future supply. The problem is on the demand side, but is that really as bad as it looks? You decide. Have a nice day.

SIW10734imagelShip designers have steadily tried to push boundaries over the last decade. During the bulk boom, efforts concentrated on maximising the cargo capacity of the standard ship-sizes to enable owners to efficiently capitalise on Chinese-led commodities demand. More recently, attention has increasingly focused on engine efficiency. The result has been gradual evolution of vessel designs, which mean that sometimes changes are needed to the statistical framework and terms used to understand the shipping industry.

Historically, the standard Handymax design of the 1990s was a ship of about 45,000 dwt. But around 2001, a few shipyards in Japan began to market a new design of just over 50,000 dwt, best typified by Tsuneishi’s TESS 52 design. This, and its evolutions of 52-58,000 dwt, proved very popular with owners in providing a flexible, geared vessel with 5 holds/hatches, a 32.2m beam, and a LOA of circa 190m. More than 1,800 such ‘Supramax’ ships have been ordered since. At one point, as many as 55 yards had Su-pramaxes on order.

Super Design Efforts

Ship designers had managed to in-crease the deadweight within the same physical dimensions, allow-ing these larger vessels to trade into traditional Handymax ports. But they were not satisfied. Design houses such as SDARI and Greenseas began to come up with expanded 5-hold designs of slightly greater LOA, improving the vessel’s capacity to about 63,000 dwt.

Ultra-Popular

These new ‘Ultramax’ designs have proven popular (see graph). 58 owners have ordered at 22 different yards, notably those of the Si-nopacific, Oshima and Imabari groups.
When the Facts Change…

However, these ‘Ultramax’ vessels present a problem for analysts used to organising the bulk fleet into neat categories based on deadweight. In terms of physical dimensions, and their 5 holds/hatches, these ships are clearly upsized Handymax/Supramax designs. But until now, as vessels above 60,000 dwt, these have been included in our ‘Panamax’ category.

This is not the first time definitions have needed review: once upon a time, there were Panamaxes below 60,000 dwt with 7 holds/hatches, and until the start of 2006, Clarkson Research (and the shipping industry) referred to all vessels above 80,000 dwt as Capesizes – but this was changed to allow for Kamsarmaxes, generally accepted as part of the wider Panamax sector.

The Ultramax designs mean that a similar change is now required again. From this week, Clarkson Research will define Handymaxes as 40-65,000 dwt, and Panamaxes as 65,000+ dwt: with one important exception. The (declining) fleet of old-style 7-hold Panamaxes built in the 80s and 90s will continue to be regarded as Panamaxes. While this is not perfect, and there are still a few oddities like chip carriers or a few wide beam ships, this change ensures that Ultramax vessels are now categorised as part of the wider Handymax sector, with which they compete.